United States: September 2018 Bid Protest Roundup

This month's round-up covers a slew of interesting bid
protests from the Government Accountability Office (GAO) and the
Court of Federal Claims (COFC) covering the most recent case in the
Department of Education debt collection saga, responsibility
matters, standing, and corporate restructuring.

September brings yet another episode in the Department of
Education (DoE) debt collection solicitation saga. As you may
know, the DoE and a group of private collection agencies have been
embroiled in protest proceedings regarding student loan debt
collection services. Most recently, in the case of FMS
Investment Corp., et al. v. United States and Alltran Education,
Inc., a group of eight collection agencies filed a post-award
protest after the DoE suddenly cancelled the solicitation.

In December of 2015, the DoE issued a solicitation for the
collection and administration of defaulted student loans. A
year later, the DoE awarded seven contracts resulting in twenty-two
disappointed offerors filing protests with the GAO. The GAO
recommended corrective action, and the next day one of the
protesters withdrew its GAO protest and filed a new protest at
COFC. In December 2017, two years after the initial
solicitation, the DoE terminated the seven contracts for
convenience. The next month, the DoE issued a revised
solicitation and ultimately awarded two contracts, which resulted
in twenty protests being filed by disappointed offerors at the
Court of Federal Claims (COFC). The protesters moved to
enjoin the DoE from proceeding with the new awards and COFC granted
those motions in part. The Government indicated it did not
plan to continue litigating the protest and the court suspended
briefing. During the suspension, the Government proposed to
announce its next steps with the procurement on May 4, 2018.
On May 3, however, the ED cancelled the solicitation, thus
inspiring the litigation that led to this decision.

In its cancellation notice, the ED explained its new plan to
implement use of "enhanced servicers" to begin collecting
on student loan accounts sooner than the private collection
agencies. The ED expected the "enhanced servicers"
to continue handling the collection for the life of the accounts,
resulting in a diminished need for collection agencies. The
notice further asserted that the ED's current small business
debt collectors could manage the existing portfolio. As such,
the ED moved to dismiss the protests and lift the injunction on the
ground that the claims were rendered moot when it cancelled the
solicitation. After the court denied the protesters'
motion for leave to add a claim, eight of the original twenty
protesters filed complaints arguing that the ED's decision to
cancel the solicitation was arbitrary and capricious, and should
therefore be reversed.

Although the COFC has made clear that each agency knows its
needs best, the agency must be able to articulate clearly its
rationale behind significant policy changes. The court will
not disturb an agency decision supported by reasoned
analysis. After reviewing the Agency Record, the court
determined that the ED's alternate plan, to more accurately
meet its "needs and requirements," was
underdeveloped. The AR revealed that the ED issued its notice
of cancellation on the same day it received an internal memorandum
discussing the "enhanced servicers" program.
Furthermore, the AR lacked detailed information regarding the
program, such as timeline for implementation, requests for
proposals, funding, processing capacity, etc. The court also
noted that the AR did not contain any support for the ED's
assertions regarding the eleven small business debt
collectors. While the ED argued its current collectors could
handle the existing portfolio, the agency failed to address any
increase in future loan volumes.

After concluding that the solicitation cancellation amounted to
a significant policy change, the court ordered the agency to
restore the procurement to its position prior to cancellation
because the agency failed to provide adequate justification for its
actions. This, of course, may lead to further litigation as
the earlier protests are resurrected.

Takeaway: Although agencies have discretion to
determine their needs, they must exercise the discretion in a
reasonable manner. When an agency fails to utilize reasonable
measures, or fails to adequately document the considerations
justifying its decisions, GAO and the COFC will scrutinize the
agencies' actions, especially when they amount to major shifts
in contracting approach or policy.

Elevator Service, Inc., B-416258.2, B-416258.3,
Sept. 13, 2018

Our next case comes from the GAO, and involves a
solicitation's special responsibility criteria. In
particular, the protester, Elevator Service, Inc., protested an
award of a contract arguing that the awardee's proposal failed
to conform to material solicitation requirements. In the case
of Elevator Service, Inc., the Department of Veterans
Affairs (VA or Agency) issued a Request for Proposals for elevator
maintenance services that was set aside for a
service‑disabled veteran-owned small business. The
solicitation indicated that award would be made to the offeror with
the lowest price that was also deemed responsible. The
offerors were required to meet both general responsibility
standards and a special standard of responsibility concerning
personnel qualifications. Regarding the special standard,
offerors were expected to provide additional documentation
confirming that its mechanics met specific criteria. The
solicitation also included submission instructions requiring
offerors to provide proof of compliance with a limitation on
subcontracting requirement.

Elevator Service, Inc. submitted its proposal along with three
other offerors. After a review of the proposals, the Agency
determined that all of the proposed prices were too high and
requested revised proposals. All four offerors submitted
revised proposals and the agency awarded the contract to
JohnsonDanforth, Inc. and this protest ensued.

Elevator Service, Inc. argued that JohnsonDanforth's
proposal should have been rejected for two reasons. Elevator
Service, Inc. alleged that (1) JohnsonDanforth failed to include
proof of compliance with the subcontracting limitation requirement;
and (2) JohnsonDanforth's proposal did not adequately
demonstrate that it was capable of performing the duties outlined
in the Statement of Work (SOW).

The GAO reviewed and denied both of Elevator Service, Inc.'s
protest arguments. Elevator Service, Inc.'s first
argument was rejected because the solicitation did not indicate
that failure to provide proof of compliance with the subcontracting
limitation would render an offeror ineligible for award. GAO
cited the difference between instructions and evaluation criteria,
noting that instructions are treated differently than evaluation
criteria and the instructions section merely provides
"guidance to assist offerors in preparing and organizing
proposals." Elevator Service, Inc.,
B‑416258.2, B-416258.3, Sept. 13, 2018 at 3.

To assess Elevator Service, Inc.'s second argument, the GAO
reviewed the record to determine whether JohnsonDanforth provided
evidence of compliance to permit the Agency to reasonably conclude
that JohnsonDanforth was responsible and could perform the
work. This determination is often left to the discretion of
the contracting officer. After a review of the plain language
of the solicitation, the GAO concluded that offerors were expected
only to provide evidence that their proposed mechanics met the
specified criteria in the Special Standards of Responsibility
section of the RFP. The GAO denied Elevator Service,
Inc.'s protest on the ground that JohnsonDanforth adequately
met all compliance criteria set forth in the solicitation and was a
responsible offeror.

Takeaway: The requirements in an instruction section of
a solicitation are not treated the same as the criteria set forth
in the evaluation section. The instructions generally provide
guidance to aid offerors in preparing proposals, whereas the
evaluation section contains minimum standards that, if not met, may
result in disqualification

Standing to file a protest is a threshold matter that must be
addressed before the merits of a protest will be considered.
Advanced Management Strategies Group Inc. serves as an
important reminder that, although standing is most often
demonstrated by proving that the protester is next in line for
award, there are other ways to confirm standing.

One alternative mechanism to demonstrate standing is to show
that the agency considered the protester for award by including the
company in the competitive range or in the best value trade-off
determination. The government argued that Advanced Management
Strategies Group's protest should be denied because the
protester was not next in line for award and therefore lacked
standing.

The Court of Federal Claims (COFC) rejected the argument and
held that the protester had standing because it was within
"active zone of consideration." Alfa Laval
Separation Inc. United States, 175 F.3d 1365,
1367 (Fed. Cir. 1999). The court agreed, finding that the agency
performed a best value trade-off between awardee Enterprise
Resource Performance, Inc.'s proposal and Advanced Management
Strategies Group's, as well as a trade-off between Enterprise
Resource Performance and another offeror. According to the court,
when the agency's best value trade-off includes the protestor,
even when it was not, notionally, the second-rated offeror, the
protestor has established that it would have had a substantial
chance of receiving the award but for an alleged error.
Further, the court noted that agencies have broad discretion
to choose from a range of proposals in a best value trade-off,
provided the choice is rational. Therefore the board could
not conclude that there was no chance the agency might have
selected Advanced Management Strategies Group for award.

After finding that the protester had standing, the COFC
sustained the protest, finding that the agency's evaluation was
arbitrary because it considered the past performance of a company
that was a strategic business partner but was not specifically
proposed as a subcontractor. Although the agency was
permitted to consider the past performance of the awardee's
subcontractors, it was not clear what the strategic business
partner would do, or whether any of the past performance advantages
of the company would actually assist with the awardee's
contract performance.

Takeaway: Although standing is most often satisfied by
a showing that the protester is next in line for award, there are
other considerations that meet the minimum standing
requirements. Government contractors should be aware that
standing can be satisfied if, for example, the company is included
in a competitive range, considered during the best value
determinations, and is within the reasonable zone of consideration
for award.

Wyle Laboratories, Inc., B-416528, Sept. 7,
2018

U.S. Customs and Border Patrol (CPB) issued a Request for
Quotations (RFQ) to firms holding a General Services Administration
(GSA) One Acquisition Solution for Integrated Services (OASIS)
contract.1 The protester, Wyle Laboratories, Inc.,
entered into an asset purchase agreement with another company where
it transferred all assets and liabilities, including those related
to the OASIS contract, to that company. The agreement
required Wyle to assist the new company with the preparation of
responses to requests for task order proposals and quotations until
the novation had been fully granted.

Almost two weeks after CPB released the RFQ, Wyle notified GSA
of its transaction with the new company and requested that the new
company be recognized as the successor-in-interest to its OASIS
contract. Wyle filed a pre-award protest with the GAO arguing
that the solicitation terms were unduly restrictive of competition
because it limited past performance information to only the prime
contractor. Wyle then submitted its quotation explaining that
Wyle would serve as the prime contractor performing contract
administration duties during the novation period until the new
company could take over and assume such responsibilities.

Wyle claims that the solicitation is unduly restrictive because
it deprives it and its successor in interest a fair opportunity to
submit a quotation for consideration. The Agency moved for
dismissal on the ground that Wyle could not be considered an
interested party. In making this determination during a
pre-award protest, the GAO assessed whether the entity has the
"capability and intent to compete under the
solicitation." Wyle Laboratories, Inc.,
B-416528, Sept. 7, 2018 at 3.

Wyle argued that it had a direct economic interest because the
solicitation did not prohibit prime/subcontractor teaming
agreements. It further asserted that the GAO should not
consider hypothetical evaluations from the agency regarding
Wyle's capability and intent to compete under the
solicitation. Nevertheless, Wyle admitted that it would not
perform any work for the task order and it did not explain exactly
how performing its limited contract administration duties resulted
in an economic interest. As a result, GAO dismissed the
protest because Wyle could not demonstrate a sufficient direct
economic interest in the procurement and it was not an interested
party.

Takeaway: The GAO is likely to look closely at whether
a protester is an interested party, especially where the company is
going through a transaction or novation that may eventually result
in the protester no longer holding the contract. Thus,
parties should think carefully about the means by which they can
demonstrate their "capability and intent to compete under the
solicitation" for pre-award protest standing.

Dyncorp International v. United States and JPATS
Logistics Services, No. 18-557 C Filed: August
9, 2018; Reissued: September 6, 2018

This protest was filed after Dyncorp had
a similar protest denied at the GAO. Dyncorp's initial
post-award protest at the GAO challenged the Air Force's
contract award to JPATs Logistics Services (JLS) by arguing, among
other things, that JLS was not a responsible offeror because it was
financially unstable. In support of its argument, Dyncorp
cited a recent debt restructuring undertaken by JLS's parent,
IAP Worldwide Services (IAP). After the GAO denied the
protest, Dyncorp initiated this protest proceeding at the COFC.
In the COFC case, DynCorp argued that the award was
unreasonable because the Air Force failed to consider JLS's
corporate role as a subsidiary to IAP, and its financial status
arising from its parent's debt restructuring.

Dyncorp specifically alleged that the agency's evaluation
was incomplete and unreasonable because it did not consider the
impact of statements in JLS's offer that inaccurately
identified the awardee as a joint venture instead of a subsidiary
of IAP. DynCorp insisted that the Air Force's failure to
consider the inaccuracy was unreasonable and prevented the agency,
which was assisted by the Defense Contract Management Agency
(DCMA), from properly considering JLS's dire financial
condition resulting from IAP's 2014 debt restructuring.

The court rejected the argument and concluded that JLS and IAP
were financially stable. Relying on DCMA's conclusions,
the COFC noted that the restructuring likely helped JLS's
financial capacity and, like the DCMA, pointed out IAP's
"upward trend in sales, net worth, and cash flow" since
the debt restructuring. The court found that the
administrative record clearly reflected the Air Force's (and
DCMA's) consideration of the awardee's financial standing
and that the debt restructuring did not provide an adequate basis
to conclude that JLS was non‑responsible.

Takeaway: In 2016, the GAO denied the notable protest
of Lockheed Martin Integrated Systems, Inc.,
B‑410189.5, B-410189.6, Sept. 27, 2016, 2016 CPD ¶ 273,
which raised numerous protest grounds challenging a contract award
to an entity that had recently undergone a corporate
restructuring. At the time, GAO recognized that consideration
of the impact of a corporate restructure on a contract award is a
highly fact intensive process. Nevertheless, similar to other
protest grounds, the assessment itself focuses on what facts were
disclosed, and the agency's consideration of the disclosed
facts against the actual and likely outcome. Corporate
restructurings related to debt and financial issues can serve as
red flags, but in the Dyncorp protest, the COFC found that
the restructuring had been considered and had helped the awardee
emerge as a financially stable entity. Dyncorp's decision
to raise this protest ground, which related to a parent
corporation's debt restructuring in 2014, depicts the
competitive landscape for government contracts. Companies
should continue to be aware of restructurings resulting from
mergers, changes in ownership, and asset acquisitions, and consider
whether any such activity could impact the awardee's ability to
perform the contract, or the agency's assessment of offers.

Because of the generality of this update, the information
provided herein may not be applicable in all situations and should
not be acted upon without specific legal advice based on particular
situations.

On November 29, 2018, the Australian Government passed the Modern Slavery Act 2018 (the "Act"), which requires all companies operating in Australia and meeting a threshold of AU$100 million in total annual global revenue to report annually on their efforts to address modern slavery in their operations and supply chains.

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